What is a second mortgage?
More commonly known as a home-equity loan, a second mortgage is a secured loan that allows homeowners to borrow against the equity of their property. These loans are very useful if you need to do any major repairs to the home or if you need to make add-ons to your home.
How much am I allowed to borrow?
The amount of money you are allowed to borrow is based on the market value of your property minus the balance of your previous mortgage. For example, if your property has a market value of $300,000 and you still owe $200,000 on your first mortgage, you will have a $100,000 equity credit line. You would then be able to borrow up to this amount.
Why would you borrow from your equity?
There will be times when you would need a large amount of money, whether it is for home improvement reasons, buying new appliances or maybe even for medical bills. Getting a home-equity loan is far better than using your credit cards to pay for these things.
Since this type of loan is secured, the interest rates will be much lower than those of credit cards. The interest rates you pay on a second mortgage can also be tax deductible for some people.
What are the payment schedules of the loan?
There are two types of home-equity loans. They differ in terms of payment schedule. The first type is called an open-end loan. This type of loan has a payment schedule of up to 30 years with a variable interest rate. The minimum monthly payment can be as low as the interest due that month.
The other type of loan is called a closed-end loan. This type of loan has a fixed interest rate, and can have an amortized payment schedule of up to 15 years with a three- or five-year balloon payment. When the balloon payment is due, you will then be able to either pay off the balance or refinance.
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